Ten Principles of Economics

1
Ten Principles of Economics

• Chapter 1

2
Terminology

• Economy
• Households
• Society
• Scarcity
• Economics
• How society manages scarce resources

3
How People Make Decisions

• 1. People Face Trade-offs
• To get something, must give up something
• Examples
• Studying
• Guns v. butter
• Environment v. standard of living
• Efficiency v. Equity
• Efficiency
• Size of pie
• Equity
• How pie is divided

4
How People Make Decisions

• 2. Cost of Something Is What You Give Up to Get
  It
• Compare benefits and costs
• Problems with calculating costs
• What to include
• Opportunity cost
• 3. Rational People Think at the Margin
• Marginal changes
• Plane example
• 4. People Respond to Incentives
• Gas prices
• Seat belts

5
How People Interact

• 5. Trade Can Make Everyone Better Off
• Families
• Countries
• 6. Markets Are Usually a Good Way to Organize
  Economic Activity
• Communism
• Market economy
• Adam Smith
• Government interference

6
How People Interact

• 7. Governments Can Sometimes Improve Market
  Outcomes
• Protect assets
• Increase efficiency
• Market failure
• Externality
• Market power
• Increase equity
• Economists v. Government policies

7
How Economy as a Whole Works

• 8. Countrys Standard of Living Depends on
  Ability to Produce Goods and Services
• US average income
• Impacted by productivity
• Policymakers
• 9. Prices Rise When Government Prints Too Much
  Money
• Inflation
• 1920s Germany
• 10. Society Faces a Short-Run Tradeoff between
  Inflation and Unemployment
• Phillips curve
• Business cycle